Rising to the Challenge or Perish? Chinese Import Penetration and its Impact on Growth Dynamics of Manufacturing Firms in South Africa

Using firm-level data from 2010 to 2017, we analyze the extent to which Chinese import penetration has affected the growth performances of manufacturing firms in South Africa. First, we study whether China’s import competition has been associated with decreasing firms' employment and sales growth, and higher probability of exiting the market, both within the same sector and across sectors along domestic value chains. Second, we test whether firms investing more intensively in their capabilities development are better able to cope with such competition. Our results indicate that rising exposure to Chinese imports—not only direct one, but also in downstream stages of the domestic value chain—leads to slower sales and employment growth and to a higher probability of shutdown especially for firms not undertaking significant investments in their capabilities development. Firms investing relatively more intensively in skills development, production technologies and related process upgrading are more likely to survive and grow